By Sue Lister, Senior Associate in Commercial Property & Development. First published in South East Farmer in September 2012.
Farmers who converted unused buildings into holiday lets, offices, or other commercial units for rental income are often having to pay hefty business rates on property now standing empty.
What can they do to mitigate the drain on overheads? Faced with falling demand for out of town rental units, and tenants defaulting on their rents, farmers have to find ways to pay off diversification loans without placing further strain on the core farm business.
Near Tonbridge, farm buildings converted 10 years ago into high quality offices stand empty after several buoyant years. One unit of 765 square feet has a rates bill of £8,000 pa, whilst an adjoining unit of 2,100 square feet is rated at £50,000 pa. Despite being offered a 50% reduction in rent, tenants simply balk at the rates bill. Down the road, rates for coldstore or packhouse units are well over £100,000 pa.
There is only a short period of relief on empty premises – 3 months for shops and offices, and 6 months for larger industrial units. Local authorities have discretionary powers to extend or reduce the relief, but in the cases above, appeals to the local rating authority fell on deaf ears. The problem is not just affecting active farmers, but those who have retired or have transferred buildings into Self Invested Pension Schemes where lack of rental income is eroding their investments.
One scheme used by landlords is to ‘occupy’ the property themselves for intermittent periods of 6 weeks, which can trigger a further period of relief. However there was always a risk of challenge by local authorities. The recent case of Makro Properties Ltd v Nuneaton and Bedworth Borough Council 2012 has at least given some certainty by clarifying the definition of ‘occupation’. In this case, storing 16 pallets of documents in a small area of an empty warehouse was sufficient because the owner had an obligation to store the documents. The fact that the pallets took up only 0.2% of the floor space, and could have been stored elsewhere, was irrelevant. The ruling is that there must be actual occupation of benefit to the occupier exclusive for its particular purpose, and the occupation must not be transient.
Farmers should consider making use of this opportunity to store their own goods or machinery. However, a word of warning - they should also consider whether that occupation requires a change of planning use.